Losing a spouse at any age is emotionally devastating. It can also deliver a major economic blow. For younger couples, smart risk management in the form of adequate life insurance can give them peace of mind and blunt the financial impact of losing the household's key breadwinner or caretaker. For older couples, nearing the end of a career, employing a smart Social Security strategy is an important form of insurance that can protect the spouse who is left behind.
The age at which the husband starts collecting can affect his wife's future benefit. Women have made enormous strides in the workforce and have increasingly become important household breadwinners. Still, family responsibilities including child-rearing, typically still fall on women. Motherhood often means reducing work hours or leaving the workforce altogether, negatively impacting career growth and long-term earnings. Consequently, men, usually remain the higher lifetime earner and are therefore eligible to collect higher Social Security benefits (this article is based on that premise). This gives a husband who is approaching retirement, an important lever to improve his wife's standard of living and retirement security in the event that he dies first.
Some Social Security basics. A person can begin collecting Social Security retirement benefits at any age between 62 and 70. One hundred percent of the benefit (known as the primary insurance amount, or PIA) can be collected at the full retirement age (FRA). FRA ranges from 66 for individuals born between 1943 and 1954, and gradually increases up to 67 for those born in 1960 or after. Collecting benefits before FRA reduces the benefit by roughly 7% per year, while holding off collecting up until age 70 increases the benefit by about 8% per year.
For married couples, the decision of when the higher earner begins collecting can have a major financial impact over both spouses' lives. An early claim by the higher earning spouse reduces the survivor benefit paid to the living spouse if the higher earner dies first. Conversely, a delayed claim by the higher earner, increases the survivor benefit paid to the widowed spouse. The math is complicated, but in simple terms, those who claim later will receive larger monthly checks to compensate them for collecting benefits for fewer months. This increase lasts for as long as either spouse is alive.
In the next article, we will talk about some of the key issues that surround the decision of when to start taking benefits.
This article is for general information purposes only and is not intended to provide specific advice on individual financial, tax, or legal matters. Please consult the appropriate professional concerning your specific situation before making any decisions.
John Spoto is the founder of Sentry Financial Planning in Andover and Danvers. For more information, call 978-475-2533 or visit www.sentryfinancialplanning.com.